Frasers Centrepoint Trust
Price target:
CGS-CIMB “Add” $2.49

FCT expected to recover fastest from Covid-19

With its portfolio of suburban malls that rely less on tourists, Frasers Centrepoint Trust (FCT) is expected to see the fastest recovery from Covid-19, according to CGS-CIMB Research. On that note, the research house is keeping its “add” call on FCT with a target price of $2.49.

FCT on June 30 announced that it will be exercising its rights of pre-emption to acquire an additional 12.07% stake in AsiaRetail Fund (ARF) for $197.2 million. The acquisition is expected to be completed within this month and will increase FCT’s interest in ARF to 36.89% from 24.82%.

This, together with the holdings of Frasers Property (FPL) of 63.1%, raises the group’s shareholding in ARF to 100%.

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Based on its proforma estimates, the deal is expected to be slightly distribution per unit (DPU)-accretive at 0.13%, while NAV remains unchanged.

In a July 1 note, lead analyst Eing Kar Mei says: “We see this as one step closer to acquiring the assets under ARF which owns five suburban retail malls (Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1) in Singapore and one suburban retail mall in Malaysia (Setapak Central).”

Being purely in a suburban mall space, ARF’s portfolio fits well into FCT’s portfolio and if acquisitions materialise, they would further enhance FCT’s position as a pure suburban mall landlord.

She notes that quality malls in Singapore are hard to come by at reasonable prices, hence the potential acquisition of ARF’s assets is a good opportunity for FCT to widen its footprint in the suburban space and further underpins its income stability.

ARF’s assets attract strong traffic of 86 persons per sq ft, compared to listed malls’ 84 persons per sq ft on average. Aside from retail malls, ARF also owns an office property, Central Plaza in Tiong Bahru, Singapore.

“The stock is trading at one-time price-to-book value, slightly below its five-year mean of 1.1 times. We believe its share price will be supported by the potential acquisitions of ARF assets,” says Eing. — Samantha Chiew

Suntec REIT
Price target:
RHB “Buy” $1.78

RHB calls Suntec REIT a ‘buy’ on better 2H

RHB Securities analyst Vijay Natarajan is maintaining his “buy” call on Suntec REIT with an unchanged target price of $1.78, on the back of expected improvement in organic income from 2H2020 due to the REIT’s newly completed developments, as well as an attractive valuation.

“Suntec REIT remains our preferred office/retail pick on valuation grounds and expected improvement in operational numbers,” said Natarajan in a July 1 report.

The REIT currently has a capital gain balance of $46 million with an expected yield of 6%, and is trading at an “attractive valuation” of 0.66 times price-to-book value (P/B), which is a 17% discount compared to its sector peers.

In addition, one of its major shareholders, the family of Gordon Tang, increased its stake to 8% through open-market purchases in May.

Natarajan notes that the REIT manager, a wholly-owned subsidiary of ARA Asset Management, has a proven ability to grow “by leveraging ARA’s network and track record” over the years.

He notes that Suntec REIT’s management provided two months’ rental rebates for retail tenants in April and May. With this, coupled with support from the government, tenants will receive four months in rebates, plus cash flow assistance by drawing on security deposits.

“We don’t expect any significant impact from mandatory one-month base rent relief for qualifying SME tenants under the new framework,” he says.

Most tenants will weather the storm, as less than 1% of tenants are expected to terminate their leases prematurely. Nevertheless, management anticipates headwinds for Suntec City mall, with occupancy levels “expected to trend to [a] low [of] 90% from a current high [of] 98% on potential non-renewals”.

To reduce operating costs, the Suntec Singapore Convention and Exhibition Centre will remain closed until Aug 2.

On the other hand, Suntec REIT’s office portfolio, which contributes 70% of the income, is seen as remaining resilient. Occupancy in 1Q2020 was maintained at 98.8% and only 8.6% of leases are pending renewal this year.

Suntec REIT leased 133,900 sq ft of office space in 1Q2020, of which 42% are new leases. This coming FY2021, some 29% of its office leases will be up for renewal and the tenants are now paying between 10% and 20% below market rates in 1Q2020. “Rent reversions in 1Q were healthy at 13% and management expects this trend to continue,” notes Natarajan.

Apart from its eponymous spaces, Suntec REIT expects higher income in 2H2020 from its new development project in 9 Penang Road, of which it has a stake of about 30%, as well as from its Australian projects — Olderfleet in Melbourne and 21 Harris Street in Sydney.

Natarajan has trimmed Suntec REIT’s distribution per unit (DPU) by 8% to 7.8 cents for FY2020 by mainly removing capital top-ups assumed. He has also increased the REIT’s FY2021- 2022 DPU by 1-2%. — Jovi Ho

Genting Singapore
Price target:
RHB “Neutral” 73 cents

Long recovery for Genting Singapore despite reopening of RWS

The reopening of Resorts World Sentosa (RWS) on July 1, which includes the casino, Universal Studios Singapore theme park and SEA Aquarium, is a positive for Genting Singapore. However, the road to recovery for the entertainment and gaming company is likely to be long and windy, according to RHB Securities analyst Juliana Cai in a July 1 note.

This is because Singapore is not reopening its borders as quickly as it could. Thus far, only officials and business travellers from certain provinces in China can make essential travel to the city-state under a “fast lane” agreement. Singapore is still working with Malaysia to set up crossborder travel.

Mass leisure travel is likely to take longer to resume given that Singapore has just begun Phase Two of the reopening of its economy, says Cai. This means Genting’s traditional visitors, who are mainly tourists from China, Malaysia, Indonesia and other countries, will be limited in number.

In addition, the resumption of tourism depends not just on the number of Covid-19 cases in Singapore, but also how well the pandemic is contained in other countries. “Tourism could take a longer time to recover to [pre-Covid-19] days. A slowdown in global economy could also hamper consumer spending,” she adds. As such, Cai expects Genting to record about 90% of its pre-Covid-19 revenue levels in FY2021.

Cai has also cut her FY2021 and FY2022 forecasts for earnings before interest, tax, depreciation and amortisation, as well as profit after tax and minority interests, for the company by about 11% and 14%, respectively.

Still, she has upgraded Genting to a “neutral” call from “take profit” and raised its target price to 73 cents from 64 cents previously. “At current prices, we believe the market has already priced in some of the recovery in FY2021,” says Cai. — Jeffrey Tan